'Never invest in anything you don't understand' is a wonderful piece of advice, in theory. But how many investors really understand the workings of their with-profit endowments or pensions?

They couldn't be accused of recklessness, considering they have bought into a mass-market product sold in billions by the biggest banking and insurance names in the country. Many investors have done well out of with-profits investments but the crisis at Equitable Life has highlighted, in the most painful way, some of the fundamental flaws in this form of investment.

It seems that it is not only small investors who do not understand the workings of with-profits funds; those who manage and regulate them seem less than clear.

The new management at Equitable says its predecessors were handing out too much in the form of bonuses and that the recent cut in returns was necessary to correct this. Yet these alleged overpayments occurred under the noses of a succession of government regulators and professional advis ers. It could be that Equitable's past management was, at best, unclear and at worst misleading in the way it explained the state of its business. But if it is so easy to befuddle supposed experts, this is certainly a part of the investment industry that needs reform, not merely of the way these funds are marketed but also the way they are run. That, we hope, is what will be the result of the various reviews under way now into with-profits investment.

The radical solution of closing funds to new investment, as suggested by former Office of Fair Trading official John Chapman last week, carries its own risk. But all options should be considered to restore confidence and ensure clarity for the investment scrutineers as well as for small investors.

Meanwhile, there is an important lesson for investors. With-profits funds turned stockmarket investment into a mass-market proposition. But companies have overplayed the extent to which they could shield small investors from risk. With mortgages and retirement incomes dependent on these investments, the truth is dawning.

Millions of homeowners and prospective pensioners are inextricably bound to the stock market now. You may be able to reduce the risks it exposes you to, but you can't eliminate them.